Quick Fixes Go Only So Far

December 28, 1991

Signs of a recession abounded throughout 1991: job insecurity, tumbling real estate prices, failing banks, tight money, shrinking incomes, rising unemployment and a stagnant gross domestic product. Yet President Bush publicly took serious notice of the sick economy only this month. He admitted that the nation was in a recession and that the economy hadn't been able to shake off this virus.

Alan Greenspan, the chairman of the Federal Reserve Board, concurred shortly thereafter. He and his colleagues on the board agreed on shock therapy for the economy by a one-percent lowering the discount rate, to 3.5 percent -- the lowest it has been in 27 years.

Mr. Greenspan conceded, however, that he is not sure that lower interest rates will do the trick. The economy may need more of a jump start than that.

Ideas for further sharp boosts range from tax cuts to tax rebates, tax write-offs for purchase of domestic automobiles and surtaxes on the rich to finance public works.

Liberals and conservatives are starting to say that federal tax cuts of $300 may not qualify as a jump start. Auto makers, reeling from General Motors' announcement of retrenchment, naturally like the auto tax credit idea. But $1,000 may not be enough to motivate wary consumers facing a $15,000 purchase.

John Kenneth Galbraith, the dean of Keynesian economists in the United States, argues that tax and monetary stimulants don't help much during a recession. He believes that only government spending on public works would employ enough people and get cash into circulation. Mr. Galbraith would revive the Works Progress Administration and the Civilian Conservation Corps -- two New Deal solutions to the Depression.

Such old-time government medicine might be worth a try but for one big obstacle: the $3 trillion-plus debt. Capital formation and business startups are shaken when the debt gallops upward. Lawmakers have the option of financing employment programs through tax hikes. But that would be an impossible sell to voters in an election year.

One sign of hope is the growing pressure to drastically reduce the military budget. That should help bring down the federal government's debt. Even then, however, Connecticut and the other

states most dependent on military outlays would continue to suffer, at least during a transitional period. During that period, the affected states would need considerable help from Washington for industrial conversion and targeted public works projects.

In other words, there are no easy answers. The Federal Reserve's dramatically lowered discount rate, welcome as it was, provides only temporary relief. The rate cut certainly will work its way through the economy far quicker than a tax cut, which requires congressional action.

Traditional remedies, however, will not be enough. The debate in Washington has scarcely touched on the need for fundamental restructuring of America's economy -- the need to become competitive globally. Presidential leadership on this score has been nil.